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PSTH - Pershing Square Tontine


Gregmal

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There was some talk of this in the other Pershing Square thread, but I think it deserves its own thread. The pitch here is fairly simple. For those who dont know what a SPAC is, first look it up.

 

You are buying cash, and investing in Bill Ackman's ability to identify a target company.

 

Currently trades 21.60, so 8% above the offering price. For the value investor out there, your IV is static and you can ascribe the 8% premium to whatever you'd like. I would point out that most SPACs tend to trade at a low single digit premium to NAV, so I essentially view this as a situation where you're paying an extra 5% for Bill Ackman...which I do in a situation like this, all day long.

 

Why does this make sense? Bill Ackman is controversial to some, and has brought on a lot of hate himself...but he is also an excellent investor and has an eye for special situations. He also has connections and access to bankers that most of us will never have. What shareholders also have going for them, is that this vehicle is very much going to be a piece of Bill Ackman's legacy, and if anyone knows how much Bill loves Bill, you have think of this as a positive influence on what ultimately ends up getting done here. I think there is an extremely high likelihood that Ackman ends up merging with a very well know, established, and profitable private company in a moderately distressed, or COVID impacted position. AirBNB has been rumored recently, so I think this gives one a good idea of where Bill's head is at. If you want to put a bow around the investment thesis, you are basically paying 5% to be a pre-IPO investor, with no lockup, in a private market darling. I am not anticipating a 50% bump on a deal announcement, nor would I expect to see him buying a hype train story stock like an electric car maker. Regardless of what it is, your downside is negligible here.

 

The bonus kicker is that if you participate in the deal, you are also going to be the recipient of 2/9 of a warrant as well...further reducing your present day cost of acquiring a PSTH share.

 

Disclosure...I own PSTH and PSTH/ws

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Didn't his Amsterdam listed Pershing Square entity trade at a discount to NAV that was as high as 20-25% at one point. That discount to NAV persisted for years despite PSH buying back shares in that time. I have no opinion on this new entity, I just find it amusing that no one would touch Ackman at a huge discount to NAV (there was no incentive fee due for years because it had performed so poorly), but now a few years later, he command a decent premium to NAV (any gains will be subject to the incentive fee).

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Didn't his Amsterdam listed Pershing Square entity trade at a discount to NAV that was as high as 20-25% at one point. That discount to NAV persisted for years despite PSH buying back shares in that time. I have no opinion on this new entity, I just find it amusing that no one would touch Ackman at a huge discount to NAV (there was no incentive fee due for years because it had performed so poorly), but now a few years later, he command a decent premium to NAV (any gains will be subject to the incentive fee).

 

It still does trade at about 30% discount.

https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/pshne-pershing-square-holdings/msg210288/#msg210288

 

While I also find it amusing, it makes sense in that PSTH has a much different risk and duration profile.

 

No deal, or if you don’t like the deal, you get back NAV. The risk is very defined.

 

I own the fund (the 30% discount one) but it’s a much different proposition. It’s a lightly levered equity fund of perpetual duration. It’s a much longer term, more volatile bet, rather than the “cash plus option” that is a pre deal SPAC.

 

It is still weird that ackman can raise billions at NAV while his fund trades at a huge discount. But it’s 2020 SPACmania.

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Yea the profile is entirely different. Pershing Square the fund is going to behave like a stock/index. You have no way to attain NAV. The SPAC is anchored to NAV on the downside, and, if you observe the behavior of SPACs both leading up to a deal, and on announcement, the odds seem in your favor. Now add in a guy with a nose for this stuff and I think the deck becomes ever further stacked in your direction. If I was looking for a longer term home for my money, it would be with the fund. If you fancy a shorter term, cash alternative, with some giddy up potential, then it's PSTH.

 

Warrants would be distributed after merger is consummated, typically not long after shareholder vote.

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Wait how does the warrant work?  Does it just show up after the deal is annoucned?

 

Owners of class A stock automatically receive 2/9 of a warrant if they still own their shares after the business combination is completed / other redemptions are made. It's essentially a way of paying shareholders to not redeem their shares when they have the option.

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Wait how does the warrant work?  Does it just show up after the deal is annoucned?

 

Owners of class A stock automatically receive 2/9 of a warrant if they still own their shares after the business combination is completed / other redemptions are made. It's essentially a way of paying shareholders to not redeem their shares when they have the option.

 

IIRC they also get the proportional amount of warrants of the redeemed shares. Which likely won't be much unless the deal is controversial.

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These warrants are interesting to follow - $7+ is pretty hefty, pricing in 50% upside from cash just to breakeven and only 3x leverage vs. underlying. Also have been trying to sell puts but can't get volume - puts are 100 in underlying and 11 in warrants for delivery so a bit of extra protection there.

 

Since only 1/9 are trading there is probably some premium boost from small float effects.

 

Anyone have guesses on realistic Acq?

 

I wouldn't think AirBnB would make a huge splash unless there was some fancy additional financial engineering attached - I think this could be an underappreciated aspect of this deal since Tontine is committed to partnership with LPs much more than traditional SPACs so any PIPE wouldn't be the standard pillaging and actually could be accretive -IMO.

 

I met Bill and worked with his team when I was on the sell-side covering transportation during their CP deal. I was generally impressed with their outfit although in hindsight I am unsure whether it was Pershing or Hunter Harrison who had the real foresight.

 

I'm attracted to deal structure as much as the Pershing brand in the end. That check size unlocks a lot of potential IMO. Also, with Buffet and Sompo backing SNOW and Palantir, it seems that even hot IPOs need underwriting from more traditional public equity investors.

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These warrants are interesting to follow - $7+ is pretty hefty, pricing in 50% upside from cash just to breakeven and only 3x leverage vs. underlying. Also have been trying to sell puts but can't get volume - puts are 100 in underlying and 11 in warrants for delivery so a bit of extra protection there.

 

Yea I was pondering this over the weekend. I bought a few around $6.4 on Friday, but from a $23 strike, yea thats definitely on the expensive side. Granted, you have 5 years here.

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  • 1 month later...

I believe they mandatorily split so unlike most spac, there is no unit anymore. Its just the shares with no warrant attached(outside of post deal) and then the ws. I do agree the options are interesting. Would imagine there is some sort of real world advantage to a deteriorating market for Bill Ackman and his ability to find a target company.

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I was just thinking that long stock short warrant costs $15.60 for a payout at least $20 and at most $23 + some warrants (the tontine distribution from holding the stock).  Similarly, put price is crazy since there's an embedded put for $20 that comes free with the stock.  Short of fraud puts should be pretty worthless

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I think from here its a hard value proposition. Mike aint giving away Bloomberg. Is a 20% pop on an IPO reasonable? Sure. Is a company potentially worth 20% more because they can benefit from being public...possibly. I dont even think that logic is great reason to stay put many times, but its at least feasible within the realm of what happens in the market regularly. So at $24, you're paying the buy that 20% value creation. From there value needs to be created. A deal of this size, with a guy like Bloomberg, will be shrewdly negotiated and its based on the NAV, not the public share/unit price.

 

Its similar to the RBAC deal with John Henry. $8B for the Fenway Group is about a 15-20% overpayment. Then tack on the % above NAV the shares are at. Its going to be virtually impossible for RBAC shareholders to do well. I dont think things will be "that" daunting for PSTH, but you're currently trading at a level that starts to make it hard to justify the deal price. Either Bloomberg negotiated a bad deal...possible, or the market is too optimistic. Media isn't an asset class I like well enough to wager, although I did short a few puts prior to this rumor.

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  • 1 month later...

https://yetanothervalueblog.com/2020/12/the-curious-case-of-psths-options.html

 

today I sold 25% OTM December 2021 puts obligating me to buy a 2% position in PSTH at $20. I received about 33 bps in premium.

 

I then purchased 44 bps of ~15% OTM puts on Berkshire for January 2022.

 

this makes my 8-9% Berkshire position protected from >15% drawdown for a very minor net 10-12 bps of spend in the base case where both options expire worthless, ~1% of the berkshire position rather than 4%+. I am not concerned about berkshire, but I like knowing that it can be converted to cash at a decent price in the event of a big drawdown (potentially for more aggressive use) 

 

I may decide to do this with additional stocks and take on a less pansy obligation to buy PSTH.

 

EXCITING STUFF!

 

we'll see how it works out. 

 

 

 

 

 

 

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Yea Ive been cranking out short/mid duration PSTH puts for a bit now. Its very bizarre. The premiums are huge so I'm a happy seller. I mean even down to the fact that from deal announcement to deal close you're typically looking at 3 months or so...yet you can get some juice on these thing a couple months out. Ive got a lot of March/June 20s and even a few June 17.5s

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I have a pretty significant size position in the March $20 puts. Seems like a no brainer. Even if there is the world's biggest market crash by then and everything tanks, I doubt they can get a deal closed before expiration of the March series. I'm willing to bet quite a lot that the $20 trust will be worth at least $20 in 3 months...

 

I really don't understand who is buying these though. Is it just someone delta hedging?

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My broker lists two series of 19 March 21 options. One looks like most stock options and the other has "(PSTH W/S 11:5.0)" appended.

 

I realize this has something to do with the attached warrants but do not understand the notation. Can someone decrypt this for me?

 

Curiously, 18 Dec 20 also has this extra series, but 15 Jan 21, 18 Jun 21, and 17 Dec 21 do not.

 

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I have a pretty significant size position in the March $20 puts. Seems like a no brainer. Even if there is the world's biggest market crash by then and everything tanks, I doubt they can get a deal closed before expiration of the March series. I'm willing to be quite a lot that the $20 trust will be worth at least $20 in 3 months...

 

I really don't understand who is buying these though. Is it just someone delta hedging?

 

Maybe people are buying it for put call spread?

 

For June 2021, right now you can buy $20 put at $1.7 and sell $25 put at $5, so that's a 66% potential return (3.3/5) for half a year while the stock is trading at ~$26. That seems juicy to the bulls!

 

If PSTH indeed dropped below $20 by June 2021, that could well mark the end of SPAC mania!!!

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